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Lawyers say ‘shares for rights’ scheme should be scrapped

The Law Society has warned that the Chancellor’s plans for new employee-shareholder contracts (‘shares for rights’) could actually cause more red tape rather than less, especially for small company owners, and should be deleted from the Growth and Infrastructure Bill.

Shares for Rights scheme

The Chancellor announced his plans to create a new type of employment contract last Autumn, which would provide employees with shares in the company they work for, in exchange for relinquishing certain employment rights.

Under the new employee-shareholder contracts, employees who opt in will give up their unfair dismissal and redundancy rights, the right to request flexible working, and will need to provide 16 weeks’ notice of a firm date to return from maternity leave (the current requirement is half that).

In return, employees will be granted between £2,000 and £50,000 of shares in the firm they work for, which will be free from Capital Gains Tax when sold.

Red tape warning

One of the main reasons behind the introduction of the scheme was to reduce employers’ fears of being taken to employment tribunals. The Government hopes that share incentives will improve productivity, and also encourage employers to take on new staff.

However, the Law Society believes that small companies (the main targets of the new scheme) will be put off by the company law obligations, costs and complex tax issues which need to be addressed by participating companies.

The organisation’s president, Lucy Scott-Moncrieff, said that the scheme could cause employers significant problems when a contract of employment is terminated, as many potential areas of litigation could arise when an employee leaves – which “runs counter to the Government’s stated aim of supporting small and medium sized enterprises through simpler regulation.”

Some of the employment rights which are given up in exchange for shares (those relating to maternity leave and flexible working) also appear to run contrary to the Coalition’s ‘family friendly’ policies:

“The proposals are likely to have a discriminatory impact as employers may not be aware of the interaction between the rights being sacrificed and those rights governed by domestic legislation, which still apply to them.”

The Law Society has written to the House of Lords, asking for the proposals to be scrapped from the Growth and Infrastructure Bill, which is currently being debated.

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